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Why Do We Have Medicare Part A and Part B?

Ever wonder why Medicare is split between Part A and Part B? The two plans cover different services, have different deductibles and co-insurance, are funded from different federal trust funds, and even differ on whether or not they charge a premium for participation. (Part A does not, and Part B does.)

The answer goes back to the contentious battle that raged over the enactment of the Medicare program in the 1960s. On one side were the Democrats and the American Hospital Association, who felt that a comprehensive, all-inclusive national health care program was needed for Social Security participants. On the opposing side were the Republicans, the insurance industry, and the American Medical Association (AMA), the association which represents many physicians. In a compromise effort to gain support for a federal Medicare plan, physician services were carved out of the original Medicare proposal, so that the federal plan primarily covered hospital care. This became “Part A” or “Hospital Insurance”, the premium-free part of the program which is available to all Social Security beneficiaries. The trust fund for the Part A program was to be funded with payroll tax deductions, which were to be placed in a trust to cover the costs of the program.

Eventually, the insurance industry softened their resistance, due to the fact that hospitals were “shifting” the costs of care they provided to the indigent to those who had insurance, which meant that insurers would benefit if some part of those costs were covered by the government. The AMA proposed an alternative, state-run, program which would provide health care services to the indigent, and the Republicans proposed a federally-run, but optional, program to cover health care services for the indigent.

Compromise legislation eventually resulted in the restoration of benefits for physician and outpatient services back into the federally-run Medicare program, as “Part B” or “Supplemental Medical Insurance”. To satisfy the original plan’s opponents, Part B was made optional. It was not to be funded from payroll taxes like Part A, but would require beneficiaries to pay a monthly premium. The beneficiary premium was intended to cover 50% of the plan’s costs, with the remaining 50% coming from the general fund of the federal government. (Although later legislation changed that ratio to 25% from premiums and 75% from the general fund.)

Learn More About Medicare Part A and Part B

Are you still looking for more information about Medicare Part A and Part B, as well as additional details about Medicare coverage? Check out our Introduction to Medicare video from the Senior Living YouTube channel. Here, we go over the basics of Medicare, explore Part A and Part B coverage, and discuss Medigap coverage.

Written By

Jeff Hoyt

Editor in Chief

Since graduating from Harvard with an honors degree in Statistics, Jeff has been creating content in print, online, and on television. Much of his work has been dedicated to informing seniors on how to live better lives. As Editor-in-Chief of the personal… Learn More About Jeff Hoyt

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